Correlation Between Ford and Nationwide Small

Can any of the company-specific risk be diversified away by investing in both Ford and Nationwide Small at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Ford and Nationwide Small into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Ford Motor and Nationwide Small Cap, you can compare the effects of market volatilities on Ford and Nationwide Small and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Ford with a short position of Nationwide Small. Check out your portfolio center. Please also check ongoing floating volatility patterns of Ford and Nationwide Small.

Diversification Opportunities for Ford and Nationwide Small

0.65

Correlation Coefficient

Ford  Nationwide Small

Poor diversification

The 3 months correlation between Ford and Nationwide is 0.65. Overlapping area represents the amount of risk that can be diversified away by holding Ford Motor and Nationwide Small Cap in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Nationwide Small Cap and Ford is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Ford Motor are associated (or correlated) with Nationwide Small. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Nationwide Small Cap has no effect on the direction of Ford i.e., Ford and Nationwide Small go up and down completely randomly.

Pair Corralation between Ford and Nationwide Small

Taking into account the 90-day investment horizon Ford is expected to generate 3.8 times less return on investment than Nationwide Small. In addition to that, Ford is 1.63 times more volatile than Nationwide Small Cap. It trades about 0.03 of its total potential returns per unit of risk. Nationwide Small Cap is currently generating about 0.17 per unit of volatility. If you would invest  1,204  in Nationwide Small Cap on September 8, 2024 and sell it today you would earn a total of  118.00  from holding Nationwide Small Cap or generate 9.8% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Ford Motor  vs.  Nationwide Small Cap

Ford Motor

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Ford Motor has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable technical and fundamental indicators, Ford is not utilizing all of its potentials. The recent stock price disturbance, may contribute to mid-run losses for the stockholders.

Nationwide Small Cap

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Nationwide Small Cap are ranked lower than 14 (%) of all funds and portfolios of funds over the last 90 days. In spite of fairly weak basic indicators, Nationwide Small showed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Ford and Nationwide Small

The main advantage of trading using opposite Ford and Nationwide Small positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Ford position performs unexpectedly, Nationwide Small can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Nationwide Small will offset losses from the drop in Nationwide Small's long position.

The idea behind Ford Motor and Nationwide Small Cap pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Analysis module to research over 250,000 global equities including funds, stocks and ETFs to find investment opportunities.